Laura Akhurst - 4 Feb, 2014

Previous Cuts Are Strengthening The Australian Economy

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eChoice RBA Commentary for February 2014.

The official cash rate has been left on hold by the RBA.

The board’s decision was based on the following factors:

  • Consumer and business confidence is still subdued;
  • The Australian dollar has started to decline in value;
  • The mining sector is still restrained;
  • Further job losses are predicted, along with a rise in unemployment;
  • The housing sector is slowly improving; and
  • Consumer spending is still soft, but gaining momentum.

The Reserve Bank of Australia (RBA) have left the official cash rate on hold at 2.5 percent for the sixth consecutive month. Economists are predicting that it is highly unlikely that any further rate cuts will be made as the previous rate cuts are beginning to make their mark on the economy.

Shane Oliver, AMP Capital head of investment strategy and chief economist, said that housing prices increases in the last quarter of 2013 and increased housing construction activity are clear indicators of the traction interest rate cuts are gaining.

Oliver also said that consumer and business confidence has hit rock bottom and retail confidence is increasing. While the Australian dollar was of concern, this has now weakened and dropped below US .88 cents. The lowest value since 2010.

Oliver and other economists are predicting that rate increases are highly unlikely in the near future, and if they do come they will be nearer to the end of 2014.

Andrew Wilson, Australian Property Monitors senior economist, said that rate policy has reduced the higher value of the Australian dollar and facilitated a revival of the Australian housing industry.

Wilson said that while the Australian economy is strengthening it is still very much a work in progress. He predicts that the RBA will wait until more economic data becomes available before making any move.

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